Governance Duties Under an Australian Credit Licence (ACL) – Part 1

Advisers and managers operating under an Australian Credit Licence (ACL) shoulder critical governance and compliance responsibilities that extend well beyond their daily client interactions. In Australia’s financial regulatory framework, holding an ACL brings with it a duty to uphold stringent standards of conduct, competency, and oversight. Key personnel – notably Responsible Managers and company directors – are charged with ensuring the licensee meets all its obligations under the law and regulatory guidance. This includes maintaining the organisation’s competence, diligently supervising representatives, and making sure all credit activities are carried out in accordance with Australian Securities & Investments Commission (ASIC) requirements. The importance of these duties cannot be overstated: inadequate oversight or poor governance can lead to regulatory enforcement, financial penalties, and lasting reputational damage to a business.

This report provides a comprehensive examination of governance duties under an ACL, with a focus on practical guidance for financial planners and credit advisers in Australia. It is structured as an educational module consistent with Continuing Professional Development (CPD) standards. We will cover the core obligations imposed on ACL holders and illustrate how key individuals should fulfill these obligations with rigor and accountability. Key topics include:

• An overview of ACL governance and conduct obligations under Australian law (National Consumer Credit Protection Act and ASIC regulations).
• The roles and responsibilities of Responsible Managers and directors in maintaining compliance and good governance.
• Maintaining ongoing competence of the organisation and its people (including training and professional development expectations).
• Monitoring and supervising representatives to ensure they comply with credit laws and ethical standards.
• Implementing effective compliance systems and controls (risk management, policies, oversight structures) to meet regulatory requirements.
• Managing conflicts of interest so that clients are not disadvantaged by any competing interests.
• The importance of documentation and evidence in compliance (record-keeping, processes, and reporting obligations).
• Consequences of poor oversight, highlighted by case studies of regulatory action in Australia and lessons from global regulatory regimes (ASIC, as well as comparisons with the UK’s FCA and the US SEC/FINRA frameworks).
• Global best practices and frameworks that can inform robust governance (such as international compliance standards and ethical codes).

By understanding these aspects, advisers who complete this module will be better prepared to discharge their ACL duties with integrity, diligence, and accountability. Strong governance is not just about avoiding penalties – it is fundamental to building client trust and ensuring long-term professional success. In the sections that follow, we delve into each topic in detail, providing both the regulatory requirements and practical steps to achieve compliance, alongside comparisons to global practices where relevant.

Overview of ACL Governance Obligations

Understanding the Australian Credit Licence (ACL)
An Australian Credit Licence is an authorization issued by ASIC under the National Consumer Credit Protection Act 2009 (NCCP Act) that allows a business to engage in credit activities legally in Australia. Credit activities can include providing credit (loans), credit services such as brokering or advising on credit, and other related conduct. With the licence comes a suite of general conduct obligations intended to ensure licensees operate fairly and soundly. These obligations form the foundation of governance duties under an ACL. All ACL holders, whether a one-person brokerage or a large financial institution, must meet these standards on an ongoing basis.

General Conduct Obligations (Section 47 NCCP Act)
Section 47(1) of the NCCP Act sets out the general conduct obligations of credit licensees. In summary, an ACL holder must:

• Operate efficiently, honestly, and fairly: The licensee must do all things necessary to ensure the credit activities authorized by the licence are engaged in efficiently, honestly and fairly. This is a high-level principle that underpins all conduct – essentially a mandate for ethical and effective operations.
• Comply with licence conditions: The licensee must adhere to any specific conditions ASIC has placed on the licence. Conditions may include scope limitations or requirements like having a certain number of Responsible Managers or maintaining membership of an external dispute resolution scheme.
• Comply with credit legislation: The licensee is obligated to comply with all applicable laws, including the NCCP Act and National Credit Code, ASIC legislative instruments, and any other regulations made under the Act. In practice, this means following responsible lending obligations, consumer protection provisions (like not engaging in misleading or deceptive conduct), privacy laws, and so forth.
• Have adequate risk management systems: If not regulated by the Australian Prudential Regulation Authority (APRA), the licensee must maintain adequate risk management systems for its credit business. This involves identifying, assessing, and mitigating risks that could prevent compliance or harm clients (e.g. risks of loan processing errors, fraud, regulatory breaches).
• Manage conflicts of interest: The licensee must have adequate arrangements in place to ensure that any conflicts of interest do not disadvantage clients. In other words, when the licensee or its representatives have interests that conflict with a client’s interests, those conflicts must be properly managed so that clients receive appropriate and unbiased service.
• Have dispute resolution systems: Every credit licensee must have an internal dispute resolution procedure that meets ASIC’s standards and be a member of an ASIC-approved External Dispute Resolution (EDR) scheme. In Australia, this is the Australian Financial Complaints Authority (AFCA). Being an AFCA member is mandatory and ensures clients have recourse to a free, independent complaints scheme if internal resolution fails.
• Ensure representatives comply: The licensee must take reasonable steps to ensure that its representatives (including credit representatives, brokers under its licence, and employees) comply with the credit legislation. This effectively deputizes the licensee with a duty to oversee and police the conduct of those who act on its behalf.
• Ensure representatives are trained and competent: Licensees must ensure their representatives are adequately trained and competent to engage in the credit activities for which they are responsible. This ties into initial training, ongoing education, and skills assessment for anyone providing credit advice or services.
• Maintain organisational competence: The licensee must maintain the competence to engage in the credit activities authorized by the licence. This is often referred to as the “organisational competence” obligation – it means the business as a whole (through its people, processes, and knowledge) must remain capable and informed in the areas of credit activities it undertakes. ASIC typically evaluates this through the qualifications and experience of key individuals (Responsible Managers) and how the business keeps its expertise up-to-date.
• Have adequate resources: The licensee must have adequate resources (including financial, technological, and human resources) to provide the credit activities and to implement proper supervision. For example, the firm should have enough staff with appropriate skill, sufficient capital or funding, and adequate IT systems to handle its volume of business and compliance tasks.
• Maintain compensation arrangements: Licensees are required to have compensation arrangements for clients who suffer loss due to breaches of the credit legislation – usually this means holding professional indemnity insurance that meets ASIC’s requirements. This ensures consumers can be compensated if the licensee or its representatives cause damage (e.g., through negligence or misconduct).
• Have compliance systems and a compliance plan: The law also specifically requires having adequate arrangements and systems to ensure compliance with all these obligations, including a written plan that documents those arrangements and systems. In essence, ASIC expects a formal compliance framework or manual that outlines how the licensee will comply and who is responsible for what.

These general obligations collectively demand a strong governance framework within any ACL-holding firm. Meeting them is not a one-time task but an ongoing process – from the moment a licence is granted and throughout the life of the business. ASIC conducts surveillance and audits of licensees and has made clear that if a licensee fails to meet these obligations, it may face enforcement action (including licence suspension or cancellation under section 55 of the NCCP Act).

Governance Implications for Key Personnel
While the obligations above apply at the organizational level, it is the people in charge who must carry them out. This is where governance duties come into focus. Two categories of personnel are especially important:

• Directors and Officers: If the ACL is held by a company (as is often the case for larger firms), the board of directors and senior officers are ultimately accountable for the firm’s compliance. ASIC and other observers (such as the 2018 Financial Services Royal Commission led by Commissioner Hayne) have underscored that primary responsibility for misconduct or compliance failures lies with those who manage and control the entity – namely, the board and senior management. Good governance demands that the board actively oversee non-financial risks (like compliance and conduct risk), ask tough questions about how obligations are being met, and set a culture that prioritizes ethical behavior over short-term profits. Directors cannot simply assume compliance is happening; they must take steps to assure themselves that systems are effective.
• Responsible Managers (RMs): ASIC’s licensing framework requires each licensee to nominate one or more Responsible Managers who are persons with appropriate qualifications and experience to manage the credit business. These individuals are central to demonstrating organisational competence and are often on the “front line” of compliance management. Although the term “Responsible Manager” is an ASIC construct (it’s not a title found in the Act, but it’s derived from the need to show competence under s47(1)(f)), it carries significant weight. RMs are expected to be directly involved in the day-to-day decisions of the credit business and must be genuinely responsible for key aspects of the credit activities. They are effectively the people ASIC looks to as ensuring the firm complies with its licence obligations on an ongoing basis.

Throughout this report, we will explore what these key personnel must do to fulfill the obligations. In practice, governance under an ACL means establishing a compliance culture from the top down, with clear accountability. ASIC allows certain functions to be delegated or outsourced (for example, you might hire an external compliance consultant to help with monitoring), but responsibility itself cannot be outsourced – the licensee and its officers remain answerable for any shortcomings.

To put these expectations in perspective, we will now discuss the specific areas highlighted: maintaining competence, supervising representatives, compliance systems, conflict management, documentation, and consequences of failures. We will also compare how other leading regulatory regimes (such as the UK and US) impose similar expectations, underlining that these governance duties reflect global best practice as well as Australian law.

Roles and Responsibilities of Key Personnel under an ACL

Strong governance starts with clearly defined roles and accountability for those in charge of a financial services business. Under an ACL, two roles stand out: Responsible Managers and Directors/Senior Managers of the licensee. Understanding their duties and how they complement each other is essential for effective compliance.

Responsible Managers (RMs)
Responsible Managers are the people identified in an ACL application (and ongoing with ASIC) as having the requisite knowledge and skills to ensure the licensee’s credit activities are competently carried out. ASIC uses the concept of RMs to assess and enforce the “organisational competence” obligation. Typically, RMs are individuals within the business who oversee key operational areas – for example, a head of mortgage broking, a compliance manager, or an executive manager in charge of credit operations. Here are the key points about RMs and their responsibilities:

• Qualifications and Experience: ASIC’s Regulatory Guide 206 (which covers competence and training for credit licensees) provides benchmarks for RMs’ credentials. Generally, each RM should have at least two years of relevant problem-free experience in the credit industry (in the last 5 years) and appropriate educational qualifications (often at least a Certificate IV in Finance and Mortgage Broking or a similar credit industry qualification). These criteria help ensure RMs have both theoretical knowledge and practical expertise.
• Day-to-Day Management Role: RMs are expected to be actively involved in the day-to-day decisions of the business’s credit activities. ASIC explicitly notes that RMs should not be people who are only indirectly involved or figureheads. For example, a non-executive director who attends board meetings but does not manage operational decisions would typically not be an RM. Instead, the RMs would be those making daily management decisions about lending or credit advice processes, compliance checking, representative supervision, etc. In a small company, the owner or general manager might be the sole Responsible Manager. In a larger company, a subset of senior managers who directly run the credit operations will be the RMs.
• ‘Fit and Proper’ and Compliance Conduct: RMs must be and remain fit and proper persons. This generally means they have no disqualifying history (such as certain criminal convictions, insolvency, or bans) and demonstrate honesty and integrity. ASIC can, and does, hold RMs accountable if they are complicit in compliance failures. For instance, if an RM knowingly allows breaches or does not carry out their responsibilities, ASIC may determine that person is not fit and proper and take action (such as banning them from the industry). A stark example occurred in 2025 when ASIC banned a Responsible Manager who was “Responsible Manager on paper only” – he accepted fees to be listed as an RM but failed to actually perform any oversight or management of the business’s credit activities. Such cases highlight that being an RM is not a nominal title; it carries real accountability.
• Ensuring Ongoing Competence: One of the primary duties of RMs is to help the licensee maintain its competence over time (more on this in the next section). RMs should lead by example in pursuing continuing professional development and also oversee the training of other staff. They should be vigilant about new regulatory developments or industry changes and update the firm’s practices accordingly.
• Implementing Compliance Measures: Often, RMs are the people who design or implement the compliance and risk management measures for the firm. They might draft policies, set up monitoring programs, and report to the board or owner on compliance performance. ASIC expects RMs to have a good understanding of the licensee’s obligations and to be proactive in ensuring the firm meets them. If a licensee has multiple RMs, typically each RM might have defined areas of focus (for example, one RM might oversee lending operations, another focuses on regulatory compliance, etc.), but collectively they should cover the core activities of the business.
• Communication with ASIC: In many cases, RMs serve as key points of contact with ASIC. They may be responsible for submitting the annual compliance certificate or notifying ASIC of significant changes (like when an RM is replaced or the business model changes). RMs should ensure that ASIC is kept informed as required by law (for instance, notifying changes in RMs, principal business address, or any breaches that must be reported).

It’s noteworthy that ASIC may impose a “key person condition” on a licence if it deems the licensee’s competence heavily reliant on one or two individuals. For example, if one RM holds very specific expertise critical to the business, ASIC might make it a condition that this person (by name) remains as a key person. If that person leaves, the licensee would have to notify ASIC and possibly cease certain activities until a suitable replacement is approved, or risk suspension of the licence. This mechanism again underlines how closely linked a licensee’s authorization is to the individuals running it.

Directors and Senior Management
In parallel with the role of RMs, the broader governance responsibility lies with the company’s directors and senior executives. Even if some directors are not named RMs, they still have duties to ensure the company fulfills its legal obligations. Key governance expectations for directors/managers include:

• Tone at the Top: Directors and CEOs must set a culture of compliance and ethical behavior. This means prioritizing customer interests and legal obligations in decision-making and not creating incentives that encourage excessive risk-taking or misconduct. The Hayne Royal Commission pointed out that many scandals in financial services were driven by the pursuit of profit at the expense of basic standards like fairness and honesty. Directors should counteract this by embedding the six norms Commissioner Hayne emphasized (obey the law, do not mislead or deceive, act fairly, provide services fit for purpose, deliver services with care and skill, and act in the best interests of clients when applicable).
• Oversight and Challenge: Good governance entails active oversight of management by the board. For ACL holders (especially those that are part of larger financial groups or significant companies), the board should receive regular reporting on compliance matters – such as compliance breaches, customer complaints, training undertaken, results of internal audits, etc. Boards should challenge management on whether enough is being done to meet obligations. For example, if internal reports show repeated compliance issues, the board should ask why and insist on remediation. Board minutes should reflect that directors engage with non-financial risks robustly, not just rubber-stamp management’s assurances.
• Resource Allocation: Directors and senior managers must ensure that adequate resources are devoted to compliance. As mentioned in the obligations, a licensee needs adequate human and technological resources. If, say, the compliance team is understaffed or if antiquated IT systems lead to errors in loan processing, that is a governance failure. Leaders should support investments in compliance infrastructure (e.g., compliance officer roles, training programs, compliance software) as necessary to keep the firm in line with regulations. Skimping on these areas can be costly in the long run when breaches occur.
• Policy and Procedure Approval: Management should establish – and the board approve – key policies that govern the ACL business. This might include a Compliance Plan or Manual, a Risk Management Strategy, a Conflict of Interest policy, a Credit Operations Manual, etc. The board should periodically review these policies to ensure they remain up-to-date with regulatory changes and the business’s operations. In smaller firms, there may not be a formal board, but the owner/manager should perform a similar review function.
• Delegation with Accountability: Directors will delegate day-to-day operations to management (and RMs) – however, they remain accountable for outcomes. ASIC and the law (Corporations Act duties) require that directors take reasonable steps to ensure the company complies with its obligations. Practically, this means directors should have reporting lines and committees that enable visibility into compliance. Some best practices include forming a Compliance Committee that meets regularly (e.g., quarterly or at least twice a year as one compliance firm recommends) to review the ACL obligations and the company’s adherence. On that committee could sit certain directors, the compliance manager, and RMs. Even where a formal committee isn’t feasible, having scheduled governance meetings focused on compliance is vital. It’s a mistake for leadership to only focus on sales and profits and assume “someone in compliance is handling the rest.” Instead, they should integrate compliance checkpoints into their business processes and strategic decisions.
• Addressing Problems Proactively: When an issue is identified (say an internal audit finds that some representatives have not been providing the required credit disclosure documents to clients), management and directors must react promptly. Good governance means not ignoring red flags. Corrective action could include disciplining or retraining staff, fixing system issues, self-reporting to ASIC if required, and compensating clients if they were harmed. Regulators often judge a company not just by whether breaches occur (some breaches may be inevitable in any complex business) but by how the leadership responds. Firms that self-identify and fix issues demonstrate a stronger compliance culture than those where problems fester or are only discovered by the regulator later.

In summary, Responsible Managers and directors have interlocking roles: RMs provide technical and operational oversight of compliance on a daily basis, while directors provide strategic oversight, resources, and a culture that empowers compliance. Both levels must collaborate closely. In a small practice, one person might wear both hats (e.g., you might be the sole director and also the Responsible Manager). In larger entities, clear delineation of duties and good communication channels between RMs, the executive team, and the board are essential.

Accountability is reinforced by regulatory action when governance fails. ASIC has not hesitated to hold individuals to account. For example, ASIC may pursue banning of directors or managers if they were responsible for serious compliance breaches. Additionally, Australia is introducing the Financial Accountability Regime (FAR) (building on the Banking Executive Accountability Regime for banks) which will further formalize accountability for senior managers in financial services, including possibly those involved in credit activities. Internationally, as we will touch on later, the trend is toward greater personal accountability for senior officers (the UK’s Senior Managers Regime is a prime example). All of this reinforces the need for individuals in charge of ACL holders to actively embrace their governance duties.

Next, we dive deeper into specific obligations and how to meet them, starting with maintaining competence and training – a foundational element of running a compliant credit business.

Maintaining Ongoing Competence

A cornerstone of good governance under an ACL is ensuring that both the organisation and its people maintain a high level of competence in credit activities. Laws and markets evolve, and an advice or lending business must keep knowledge and skills current. “Ongoing competence” appears as a formal obligation in section 47(1)(f) of the NCCP Act, and ASIC provides guidance on how licensees should fulfill this duty.

Organisational Competence
Organisational competence refers to the collective ability of the licensee to carry out the credit activities on its licence efficiently, honestly, and fairly. When applying for an ACL, the company demonstrates competence largely through its nominated Responsible Managers’ credentials (their experience and qualifications form the basis of ASIC’s assessment). However, once the licence is granted, competence is not static – it must be maintained. ASIC expects licensees to have measures in place to ensure they continue to meet the competence obligation at all times. Practical steps include:

• Regular Competence Reviews: The business should periodically (e.g., annually) review whether it still has the necessary skills and knowledge for its activities. Changes that might trigger a review include the introduction of new products or services, expansion into new markets, regulatory reforms, or turnover of key staff. For instance, if a brokerage diversifies from home loans into commercial loans, do the current staff and RMs understand commercial credit sufficiently? If not, additional training or hiring might be required. Similarly, if an experienced RM leaves, the company must assess if remaining RMs cover all required areas or if a new RM with particular expertise is needed.
• Continuing Professional Development (CPD) for Responsible Managers: ASIC does not prescribe a specific number of CPD hours for RMs, but it does expect RMs to continually update their knowledge. In practice, a good benchmark is drawn from other financial services: for example, financial advisers in Australia (under an AFSL) must complete minimum annual CPD hours. Many ACL-holding firms apply similar standards to their RMs voluntarily (e.g., requiring 20+ hours of CPD per year). CPD can include attending industry training sessions, completing relevant courses (like advanced lending, compliance updates, seminars on regulatory changes), and reading industry publications. A notable common mistake observed in the industry is Responsible Managers not completing their CPD – failing to do so can leave an RM ill-equipped to oversee new developments and is viewed negatively by ASIC if uncovered. Each RM should have a personal development plan for the year and the firm should track completion.
• Maintaining a Training Register: To support competence, firms should keep a training register for each Responsible Manager (and possibly other staff too). This register logs all training activities undertaken, dates, topics, and hours/credits earned. Keeping it up-to-date is important for two reasons: it forces discipline in actually doing the training, and it provides evidence to regulators or auditors that the firm is investing in maintaining competence. Assign someone (often the compliance manager or one of the RMs) to be responsible for updating and monitoring this register. Regularly review it to ensure RMs are on track with their development goals.
• Qualifications Upkeep: If there are new or higher qualification standards introduced by the industry or regulator, ensure RMs and advisers meet them. For example, if down the line a new requirement mandated a diploma for certain credit activities, the firm should facilitate its RMs in obtaining that. While existing Cert IV qualifications might suffice now, always be aware of evolving professional standards.

Training and Competence of Representatives
Beyond the RMs, all representatives (employees or authorized credit representatives who deal with clients or credit matters) must be adequately trained and competent. Good governance means investing in staff training continuously:

• Onboarding and Initial Training: New representatives should receive thorough training on the credit products they will deal with, the laws and regulations (responsible lending obligations, NCCP Act basics, privacy, anti-discrimination, etc.), and internal policies (like how to complete needs analysis, how to use the compliance systems). Many firms use a mix of formal courses and shadowing experienced staff to train newcomers. For mortgage brokers, obtaining at least a Cert IV in Mortgage Broking is generally an entry requirement, followed by mentorship programs (industry bodies like the Mortgage & Finance Association of Australia have mentorship frameworks for new brokers).
• Ongoing Training Program: Schedule regular training sessions for all representatives. Key areas to cover on an ongoing basis include: updates on regulatory changes (ASIC frequently updates regulatory guides or the government amends laws – e.g., changes to lending standards or consumer protection rules), refreshers on obligations like avoiding misleading and deceptive conduct, proper documentation practices, and emerging risks (such as avoiding involvement in loan fraud or dealing with vulnerable customers appropriately). Ongoing training might be delivered via online modules, workshops, or at team meetings. As an example, a licensee might require each representative to complete an annual compliance refresher covering topics like responsible lending, ethics, and any recent ASIC enforcement examples to learn from mistakes of others.
• Specialized Training for Specific Roles: If certain staff perform specialized functions (e.g., a credit assessor, or an internal compliance officer), ensure they get targeted training. A compliance officer, for example, might attend external compliance conferences or ASIC briefings to stay sharp. If a rep deals with more complex credit products (say asset finance or rural lending), tailor training to those complexities.
• Documenting Representative Training: Just as with RMs, keep records of representative training – dates of sessions, attendees, topics, and results (if any tests or assessments were done). Not only will this help track who may need follow-ups, but in the event of an issue, being able to show that the representative had been trained on a topic can be a mitigating factor. Conversely, if a representative commits a breach and there is no evidence they ever received training on their legal obligations, ASIC would view the licensee as having failed its duty.

Maintaining competence is not only a defensive strategy to avoid breaches; it actively improves the quality of service to clients. Well-trained advisers are more likely to give accurate, suitable credit advice, and competent staff process applications more efficiently and correctly. It also boosts confidence within the team and among consumers that the firm knows what it’s doing.

Adapting to Regulatory Change: The credit industry has seen significant regulatory changes in recent years. For example, from January 2021, mortgage brokers in Australia became subject to a Best Interests Duty – requiring them to act in the best interests of consumers when providing credit assistance (essentially raising the standard of conduct and addressing conflicts like commission structures). A compliant firm would have anticipated this change (which was legislated in response to the Royal Commission) and ensured all brokers were trained on how to comply with the new duty before it took effect. Similarly, when ASIC updates its guidance or enforcement priorities (say ASIC emphasizes avoiding inappropriate lending to vulnerable customers), the firm’s competence measures should reflect those current expectations. Regularly reviewing ASIC publications, industry association guidance, and even global trends will help keep your competence up-to-date.

Global Comparison – Competence Expectations: Maintaining competence is a universal principle. In the UK, the Financial Conduct Authority (FCA) requires that firms ensure staff are competent and remain so; for example, under the FCA’s Training and Competence (T&C) rules, certain roles (like advisors) must meet qualification standards and undertake ongoing training. The FCA’s Senior Managers and Certification Regime (SMCR) also puts the onus on firms to annually certify that their key staff are fit, proper, and competent in their roles. In the US, while the regulatory structure is different, there are ongoing education requirements for certain licenses (for example, securities brokers must do periodic continuing education, and many states require mortgage loan originators to complete annual continuing education as part of their licensing). The theme is consistent: regulators worldwide expect financial professionals to keep learning and updating their skills. As a best practice, many firms globally align with professional certifications or codes – for instance, the CFA Institute’s Code of Ethics includes a duty to maintain and improve professional competence. While that code is more investment-focused, the ethos applies in credit advice too: never let your knowledge stagnate.

By diligently maintaining organisational and individual competence, an ACL licensee creates a strong first line of defense against compliance problems. The next section will examine the closely related duty of monitoring and supervising representatives, which is how a firm ensures that all that training and competence actually translates into compliant behavior in practice.

Monitoring and Supervision of Representatives

Even with well-trained staff and knowledgeable managers, active monitoring and supervision are needed to ensure that representatives follow through on their training and adhere to legal requirements in their daily work. ASIC explicitly requires credit licensees to take reasonable steps to ensure representatives comply with the credit legislation. This places a positive duty on licensees to oversee and police the conduct of those acting on their behalf. In essence, every ACL holder must operate a supervision system akin to a “compliance net” that catches issues or misconduct by representatives early and addresses them.

Who are Representatives?
Under the credit licensing regime, “representatives” of a licensee include a broad range of people: directors or employees of the licensee, credit representatives (third parties authorised to engage in specified credit activities on behalf of the licensee), and any other person acting on behalf of the licensee in providing credit services. For example, if you are a licensee that engages a network of independent brokers as your credit representatives, each of those brokers is your representative and you must supervise them. Similarly, if you have loan officers employed in your firm, they too must be supervised. Essentially, if someone can affect consumers or the firm’s compliance through their actions in credit activities, they should be considered in your supervision program.

Elements of an Effective Supervision Framework:
A robust supervision system typically includes the following components:

• Clear Reporting Lines and Responsibility: The licensee should establish who is responsible for supervising whom. In a small outfit, the Responsible Manager might supervise all representatives directly. In larger organisations, there may be layers – e.g., regional managers supervise loan officers in their region, who in turn report to a national compliance manager or RM. Every representative should know who their supervisor is, and supervisors should understand their duty to monitor those under them. It’s prudent to document this in an organisational chart or in role descriptions.
• Written Supervisory Procedures: Having a Monitoring and Supervision Policy or section within a compliance manual is highly recommended. This document would outline how often supervision occurs, what methods are used, and how results are documented. For instance, it might state that “Sales Managers will review 5 randomly selected loan files per representative per quarter for compliance with responsible lending requirements and documentation standards” or that “All new representatives will have 100% of their first 10 credit applications reviewed by the compliance team before submission.” Written procedures set a standard and consistency for supervision efforts.
• Ongoing File Reviews and Audits: A primary tool for monitoring is reviewing sample transactions handled by representatives to ensure they were done correctly. In the credit context, this could mean auditing loan application files, credit assessment worksheets, customer communications, and final loan offer documents. The review checks for completeness (e.g., is there evidence of proper inquiries into the customer’s requirements and objectives? Was a credit guide given? Were serviceability calculations done accurately and according to responsible lending guidelines? Is there any sign of falsification of documents or misrepresentation?). The firm should establish a routine for these reviews. It could be risk-based – for example, more frequent reviews of representatives who are new, or if a particular representative handles more complex cases or had past issues, do a higher sample for them. Results of these audits should be recorded, and any deficiencies should be fed back to the representative for rectification and training.
• Real-Time Oversight for High-Risk Activities: Some aspects of credit activities might warrant real-time or pre-approval oversight. For example, if a broker wants to approve an exception to normal lending criteria, a supervisor might need to sign off first. Or if a rep is about to recommend a debt consolidation loan that increases a client’s debt, perhaps a manager must review that recommendation before it’s presented to the client. By building in checkpoints for high-risk scenarios, the licensee can catch potential issues before they impact the client or breach rules.
• Monitoring of Communication: Supervisors should also monitor communications to some extent – this can include emails, advice documents, and even phone call recordings if available. The purpose is to ensure representatives are not making misleading statements or promises to clients and that they adhere to disclosure requirements. For instance, reviewing a sample of written credit proposals or customer file notes can reveal if a representative is documenting the rationale for a loan recommendation properly and honestly.
• Incident/Breach Reporting Process: Representatives should be encouraged and required to report any compliance incidents or mistakes they discover (whether it’s their own or others’) immediately to management. The culture should be one where raising a concern is seen positively (an opportunity to fix an issue) and not punished when done in good faith. Having a formal internal incident reporting form or channel helps track these issues. Once reported, management must investigate and, if necessary, report significant breaches to ASIC (under the new breach reporting regime, credit licensees must report certain breaches within 30 days). Also, any client harm should be addressed (e.g., if a rep gave a client the wrong information, promptly correct it and inform the client).
• Regular Meetings and Check-Ins: Supervisors or RMs should hold regular one-on-one or team meetings with representatives to discuss compliance and performance. These meetings can serve to reinforce expectations, discuss any new regulatory developments, and allow representatives to raise questions or difficulties they are encountering. They need not be overly formal, but some record of issues discussed should be kept. This ongoing dialogue often preempts problems by surfacing them early.